Avoiding rental claim errors

The ATO is targeting those who rent out their property for a few weeks during the year but claim a full year’s worth of tax deductions.

The tax office will be paying close attention to rental property owners, especially those who own a holiday home and those who incorrectly claim for initial repairs to recently acquired properties.

Last year, the ATO sent out letters across Australia reminding people to only claim deductions that they are entitled to for the periods that their rental property was rented out or genuinely available for rent.

While the majority of taxpayers who received those letters reduced their claims, a key concern that remains is people making claims for expenses when a property is not genuinely available for rent.

With the ATO taking a more broad approach in monitoring rental deductions, now may be the perfect opportunity for property investors (including holiday home owners) to review the rules surrounding available deductions to ensure they address any risks or issues in a timely manner.

Areas where rental property owners are incorrectly claiming deductions include;

  • Claiming excessive deductions
  • Partners splitting income and deductions
  • Repairs or maintenance claims
  • Claiming for interest deductions

A common mistake that has arisen among rental property owners is claiming deductions for initial repairs to rectify damage or deterioration that existed at the time of purchasing the property.  Owners are not entitled to claim such deductions, even if they repairs were carried out to make the property suitable for rent.

Instead, the cost of these repairs is used to work out any profit or capital gain when the property is eventually sold.